3C1 & 3C7 Fund Exemptions, What’s the Difference?

Let’s talk about what some different fund structures are and which one you should use.

Let’s get TECHNICAL.

If you know me and you’ve read some of my other posts or watched my youtube videos you know that I like to lay things out simply for you…

Well today we are going to tackle Fund Structure Exemptions.

Which I know this isn’t everyone’s favorite topic and is kind of dry but it is necessary for you to know!

I want to briefly discuss the difference between a 3C1 and a 3C7

And which one you should be using.

Main Differences

Before we start let’s just summarize the different types of investors for funds:

  1. Non-Accredited: Can basically be anyone, just regular friends and family or even strangers.
  2. Accredited: $1+ million net worth (outside of home) or make $200K+ per year (or combined $300K+/year with their spouse).
  3. Qualified Client: $2.1+ million dollar net worth (outside of home).
  4. Qualified Purchaser: $5+ million net worth.

Now, in the SEC under The Investment Company Act of 1940 they put regulations into place to keep track of investment companies and funds.

However, they made 2 different exemptions…

3C1s & 3C7s.

These exemptions allow you to file without the scrutiny of regulations, reports, and so on from the SEC through private offerings.

Let’s talk about the rules for each…

3C1 Exemption Rules

In this exemption you can raise money from 99 investors…

And they need to be accredited or above.

With this exemption you can also only charge management fees,

You CANNOT charge performance fees.

(If this seems like some of this is going over your head I have other videos on my youtube channel that can help dive into them!)

If you want to charge multiple fees they will need to be a Qualified Client or above.

A lot of times on news channels or other ads you might see companies say they only raise from qualified investors, and this is what they mean.

So then you know they are only raising money from people with a $2.1+ million net worth.

3C7 Exemption Rules

In this exemption you can raise money form 1999 investors.

However, all of your investors must be qualified purchasers or above…

That means AT LEAST a $5+ million net worth!

Usually these are massive, massive funds.

A lot of Funds, including my own, are smaller funds… typically less than 100 investors.

Remember to have a well trusted legal advisor to help you through the different documents for each fund structure. While they may be similar you do not want to be caught off-guard.


When looking at our two options we are most likely wanting to go with a structure of 3C1 when first starting out.

Now I’m not discouraging you from going out and looking for people with a $5+ million net worth…

By all means if you can do it then do it!

But, for most of us we will want to look into the first option for now,

Once you scale and grow larger then we can transition into a 3C7.

This might have been a lot and I want you to know I am here to help,

So please leave a questions or comment down below and I’d love to reach out and help!

Take Care!

Bridger Pennington

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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.

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